Trends and Issues in California’s Low Carbon Fuel Standard – Learning from Response to Existing Climate Policy

Abstract:

Debate over lower greenhouse gas (GHG) emissions from transportation has included heated discussion about appropriate policies and their cost and feasibility. One prominent policy mechanism, a carbon intensity standard, rates transport fuels based on analysis of lifecycle GHG emissions, and targets lower fuel pool carbon intensity through a market mechanism that uses a system of tradable, bankable credits and deficits. California instituted such a policy -- the Low Carbon Fuel Standard (LCFS) – in 2010, which targets a 10% carbon intensity (CI) reduction by 2020. The program rolled out amid concerns over slow development of new fuels expected to be very low carbon (such as cellulosic) and has faced court challenges that added considerable policy uncertainty. Since the program’s start, state transport energy mix has shifted modestly but noticeably. Looking ahead, emerging issues for the program include amendments and re-adoption in response to a court ruling, potential interaction with California’s multi-sector cap on carbon emissions (which started covering transport fuels in 2015), and impacts from similar CI standards in other jurisdictions.

This study provides an analysis of fuel mix changes since the LCFS was implemented in 2011, and a discussion of emerging issues focusing on policy interaction. Descriptive statistics on alternative fuel use, available fuel pathways, and CI ratings are presented based on data from the California Air Resources Board (which runs the program). They document a shift towards more alternative fuels in a more diverse mix, with lower average CI ratings for most alternative fuel types. Financial incentives for various fuels are compared under the LCFS and the US federal Renewable Fuel Standard; disincentives from conceptually different carbon pricing schemes under the LCFS and the Cap-and-Trade are also outlined.

The results provide important information on response to an existing market-based policy mechanism for addressing GHG emissions in transportation, as other jurisdictions weigh similar climate policies and debate mechanisms and costs and California announced an ambitious target of halving petroleum use by 2030.